New Economics Papers
on Financial Markets
Issue of 2007‒05‒04
four papers chosen by

  1. The relationship of capitalization period length with market portfolio composition and betas By Jordi Esteve Comas; Diego Ramirez Sarrio
  2. What Drives Corporate Bond Market Betas? By Abhay Abhyankar; Angelica Gonzalez
  3. Multiple Bank Relationships and the Main Bank System: Evidence from a Matched Sample of Japanese Small Firms and Main Banks By OGAWA Kazuo; Elmer STERKEN; TOKUTSU Ichiro
  4. Financial Market Risk and U.S. Money Demand By David Cook; Woon Gyu Choi

  1. By: Jordi Esteve Comas; Diego Ramirez Sarrio (Universitat de Barcelona)
    Abstract: Beta coefficients are not stable if we modify the observation periods of the returns. The market portfolio composition also varies, whereas changes in the betas are the same, whether they are calculated as regression coefficients or as a ratio of the risk premiums. The instantaneous beta, obtained when the capitalization frequency approaches infinity, may be a useful tool in portfolio selection.
    Keywords: period capitalization, capm, beta, portfolio composition, instantaneous beta
    JEL: G12 G11
    Date: 2007
  2. By: Abhay Abhyankar; Angelica Gonzalez
    Abstract: We study the cross-section of expected corporate bond returns using an intertemporal CAPM with three factors; innovations in future excess bond returns, future real interest rates and future expected inflation. Our test assets are a broad range of bond market index portfolios of different default categories. We find, using the Fama MacBeth cross-sectional method, that innovations in future expected real interest ratesand future expected inflation explain the cross-section of expected corporate bond returns. Our model provides an alternative to ad hoc risk factors used, for example, in evaluating the performance of bond mutual funds.
    Keywords: bond market, fixed income mutual funds, asset pricing model, variance decomposition, recursive utility, betas, factor pricing.
    JEL: F31 F37
  3. By: OGAWA Kazuo; Elmer STERKEN; TOKUTSU Ichiro
    Abstract: Based on a matched sample of Japanese small firms and main banks, we investigate bank-firm relationships in the early 2000s. We obtain some remarkable new findings. First, small firms have multiple bank relationships even though they have their main bank relations. Second, firms tied with financially weak main banks increase their number of bank relations to diversify liquidity risk. Third, the duration of a main bank relation has a positive effect on the number of bank relations. This is interpreted as either a reputation effect or firms' counterbalance actions against the monopoly power of main banks. To go further into this issue, we examine the effects of a main bank relation on the design of loan contracts. We find that firms with fewer bank relations tend to pledge personal guarantees to their main banks and are charged a higher interest rate. Our evidence lends support for the hypothesis of monopoly exploitation by main banks.
    Date: 2007–04
  4. By: David Cook; Woon Gyu Choi
    Abstract: This paper examines empirically U.S. broad money demand emphasizing the role of financial market risk. We find that money demand rises with the liquidity risk of stock markets or the credit risk of corporate bond markets. After controlling for the effect of financial market risk, money demand becomes relatively stable over the last 35 years. At the sectoral level, household money holdings continue to be stable in a traditional model controlling for a decline in transactions costs for investing in mutual funds in the early 1990s. In contrast, business money holdings have been consistently (positively) associated with credit risk.
    Keywords: Money demand , financial market risk , stock market liquidity , money market mutual funds ,
    Date: 2007–04–17

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.